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National Treasury lines up Sh76.5bn switch bond offer
The National Treasury says the issuance of the switch bond aligns with the 2025/26 fiscal year borrowing plan which seeks to reduce pressure from maturing instruments.
Investors in a three-year government bond maturing on May 11, 2026 will be offered the opportunity to roll over their principal into 10 and 15-year securities next week.
This comes as the National Treasury resumes liability/debt management operations to smoothen risks associated with maturing domestic debt.
Holders of the FXD1/2023/003 paper whose outstanding value is Sh76.5 billion will have the option of rolling over their claims into 10 and 15-year papers. The three-year bond has a coupon or fixed interest rate of 14.228 percent.
Investors who will snub the offer will get their principal back –plus accrued interest— on the original maturity date of May 11, 2026.
A bond switch or swap occurs when investors holding one bond sign up to convert their claims into another security --usually a longer term paper-- that will most likely have a different interest rate.
The National Treasury says the issuance of the switch bond aligns with the 2025/26 fiscal year borrowing plan which seeks to reduce pressure from maturing instruments.
“The liability management plan via bond buyback and switch auctions on domestic debt will be part of the borrowing strategy in FY (fiscal year) 2025/26,” the exchequer said in its annual borrowing plan report.
“This will be implemented by selecting the optimal mix of instruments to replace maturing bonds with the aim of reducing maturity pressure and smoothening the redemption profile.”
This will be the third switch bond issued after similar swaps in June 2020 and December 2022. The National Treasury brought its first switch bond in June 2020, offering investors a six-year infrastructure paper in exchange for a maturing one-year Treasury bill. The issuance netted Sh20.2 billion out of a target of Sh25.6 billion.
The second switch bond, sold in December 2022 targeted holders of maturing Treasury bills worth Sh31.96 billion and a maturing two-year bond worth Sh55.85 billion. The swap which was offering a Sh87.8 billion six-year infrastructure bond raised Sh47.8 billion.
The exchequer shelved a plan to offer further switch bonds in January this year. The National Treasury had planned to switch bonds worth Sh204 billion to holders of securities maturing in April and May this year.
Five further switch bonds are planned between next month and the end of 2026 as the exchequer sees swaps as an innovation to address domestic maturity pressures into the short and medium term.
October’s switch bond will target maturities of Sh103.4 billion from a 10-year fixed rate bond set to mature on August 17 next year where investors will be offered papers with tenors of 10 to 15 years. Further switch bonds are planned for mid-November this year (Sh66.1 billion), January 2026 (Sh73.4 billion), February (Sh91.6 billion) and Sh144.5 billion in June 2026.
The government previously failed to follow its published annual borrowing plan and calendar indicating that schedules for debt issuances are not necessarily cast in stone.
The National Treasury has also pursued domestic buybacks and issued a first such issuance in February by targeting the partial early retirement of Sh50 billion on three papers that were due to mature in April and May.
